It's marketing pricing strategy

1. Prof. Bauer-Ramazani
MARKETING
Pricing Strategies

2. Overview
 Definition of price
 Prices in BU113 companies
 Factors that influence the pricing decision
 Pricing objectives
 Three major pricing strategies and their
advantages and disadvantages
 Pricing strategies over the product life cycle
 Pricing tactics

3. Price -- Definition
• the amount of money charged for a product or
service
• the sum of all the values that consumers
exchange for the benefits of having or using
the product or service
• Examples of “price?”
– Tuition, rent, fare, retainer, toll, salary/wage, dues

4. Prices -- BU113 Companies
• What objectives did the managers have in
mind when they set their prices?

5. Factors in Setting Price

6. Pricing Objectives
Meet
Business
Objectives
Other Pricing Objectives
 Status Quo
 Image
 Social & Ethical Considerations

7. Price Strategies for New Products
PRICE
PRICE
PRICE
Skimming  Penetration
Penetration Pricing
Skimming Pricing
Low price  establish
product in the market
High price/Prestige
pricing
 appeal to early
adopters; recover high
R&D costs
Lower price over time
 Move inventory, stimulate
D, extend product life

8. Marketing Strategy Over the Product Life Cycle
INTRODUCTION GROWTH MATURITY DECLINE
Marketing strategy Market development Increase market Defend market Maintain efficiency in
emphasis share share exploiting product
Promotion Mount sales Appeal to Emphasize Reinforce loyal
Strategy promotion for mass market brand differences, customers; reduce
product awareness benefits & loyalty promotion costs
Place strategy Distribute through Build intensive Enlarge Be selective in
selective outlets network of distribution distribution, trim
outlets network unprofitable outlets
Pricing High price/unique Lower price Price at or below Set price to
strategy product / cover over time competition remain profitable
production costs or
reduce to
Low price/gain liquidate
market share

9. Price-
Setting
Tools
Economic—Supply/Demand
Determining Prices

10. Elasticity of Demand
measure of the sensitivity of demand to changes in prices
not price sensitive - no real change in demand price sensitive - changes in demand
Inelastic Demand
Q2 Q1 Quantity
P1
P2
Electricity
Price
Elastic Demand
Q2
Quantity
P1
P2
Fast food
Q1
Price

11. Market-based Pricing
 Pricing Existing Products/Services - 3 options
 Pricing below market prices  price wars
 EX: airlines, store brand vs. manufacturer’s brand
 Dumping
 Pricing above prevailing market prices for
similar products
 EX: Sony  higher price = higher quality?
 Pricing at or near market prices

12. Pricing Tactics
 Price Lining
• Price points: Setting a limited number of prices for
certain categories of products
 Psychological Pricing
• Odd-even
 Discounting
• Quantity discounts
• Cash discounts (2/10 net 30)
 Web programs: free!

13. Cost-based Pricing (Cost-Plus)
1. Cover costs
 Material
 Labor
 Capital resources
 Marketing
2. Mark-up
 Targeted return for shareholders
 Costs + mark-up = Sales price
$1.00 + $0.50 = $1.50 (50% markup)
variable costs
fixed costs

14. Mark-up Calculation – Exercise
1. Price per product
2. Less the cost per product (what you paid
the supplier, e.g. total cost paid / # of items
purchased)
Price
Sales
Up
Mark
Dollar
UP
MARK
%




15. Breakeven Analysis
TC = TR

16. Breakeven Point Formula
(Contribution Margin)
cost/unit
Variable
–
Price/unit
Costs
Fixed
QUANTITY
BREAKEVEN 

17. Review
• 5 Factors that influence prices
• Pricing objectives
• Pricing strategies at different stages of the
Product Life Cycle (advantages/disadvantages)
• Methods of Determining Prices
– Elasticity of demand
– Mark-up
– Breakeven Analysis